Consider this. You take a home loan jointly with your father. He is going to retire from service a few years later. Obviously, your capacity to service the repayment obligations will take a hit. Therefore, it would really suit you if you could have a ‘reducing EMI’ on your home loan since after 5 years you have to service it from your own income. This is exactly where a home loan with ‘reducing EMI’ comes into play.
Without a doubt, it is an innovation that borrowers who are nearing their working career would find beneficial. Some housing finance companies and banks offer this facility to borrowers.
Amount payable declines over time
Let’s take a close look at how it works. In these arrangements, the amount payable declines over time. The chief feature is that it allows borrowers to pay less interest over the life of the loan. At the beginning the interest rate is high and progressively some down with time. As the borrower pays off the loan, the interest liability goes down which indicates that more of the instalments goes towards repaying the principal.
If income goes down
“The step-down loan option is particularly useful for those who are close to retirement and are earning a hefty sum,” said Nilanjan Dey, investment strategist and director, Wishlist Capital.
What a bank has to say
“You can choose this facility when your income is going to reduce after a certain period during the loan maturity. The objective of this option is to recover maximum when income are at high level. This leads to 2 EMIs for different periods during the loan maturity. The Facility will help you to take bigger Home Loan by combining parent and children income together. Post retirement of the parent, children will make the payment of residual loan. The EMI in the initial period will be higher than the EMI in the later period,” says IDBI Bank in its website.
The thing to remember is since the cash flow from income is going to decrease in a few years, the borrower must make precise projections of the level of income in the years ahead and plan the repayment period accordingly.
A step-down loan is an innovation that is especially suited for those who are nearing the end of their working life and whose income would go down in a few years. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
